Report on performance Outcome 1 Sound macroeconomic environment Output 1.1.1 Domestic economic policy advice and forecasting Output 1.1.2 International economic policy advice and assessment

Report on performance

The report on performance covers Treasury's administered items and departmental outputs for 2002-03. The administered items are revenues, expenses, assets or liabilities managed by agencies on behalf of the Australian Government. Administered expenses include subsidies, grants and benefits. Departmental outputs are the goods and services the department provides for, and on behalf of, the Government. Treasury's 2002-03 performance is reported at the outcome and output levels for its three policy outcomes:

• Outcome 1: Sound macroeconomic environment;
• Outcome 2: Effective government spending and taxation arrangements; and
• Outcome 3: Well-functioning markets.

Performance outcomes are reported against the performance information published in the Treasury section of the 2002-03 Portfolio Budget Statements. Details of changes to Treasury's structure and performance information are outlined in the group overviews, and results of evaluations undertaken during the year, including those listed in the 2002-03 Portfolio Budget Statements, are incorporated into the performance summary for the relevant output. The Mint's performance report against outcomes and performance against the Mint service charter is included in Outcome 3, Output 3.1.5. The Foreign Investment Review Board, which is serviced by a secretariat located in the department, has published a service charter. Performance against the service charter customer service standards is contained in the Foreign Investment Review Board annual report. Top

Outcome 1 Sound macroeconomic environment

Treasury aims to contribute to a sound macroeconomic environment by monitoring and assessing economic conditions and prospects, both in Australia and overseas, and by providing advice on the formulation and implementation of effective macroeconomic policy, including monetary and fiscal policy. Treasury provides advice on advancing Australia's interests at forums such as the Group of Twenty, and international institutions such as the World Bank, the International Monetary Fund and the Asian Development Bank, and in the Asia-Pacific Economic Cooperation process. Australia is making a significant contribution to international efforts to sustain international economic stability and growth through these forums. Economic Group changed its name to Macroeconomic Group during the year. This name change was to better reflect the nature of the group and was not accompanied by any significant restructuring. During 2002-03, Macroeconomic Group contributed to policy development and advice on government decisions by monitoring and assessing economic conditions and prospects, and by providing advice on the formulation and implementation of effective macroeconomic policy, including monetary and fiscal policy. The Group also provided advice to government ministers on strategic international economic policy issues, advanced Australia's interests through the international financial institutions and international forums and bilaterally with relevant countries, and monitored and analysed global economic developments. Feedback from Treasury portfolio ministers indicated these outputs effectively contributed to their needs in formulating, implementing and explaining government spending and taxation decisions.

Figure 5: Outputs contributing to Outcome 1

Key priorities in 2002-03 Treasury's 2002-03 Portfolio Budget Statements and internal planning processes identified the following key priorities for Outcome 1:

• continue to examine domestic and international developments affecting the economy directly and through the way in which fiscal and monetary policy is formulated and applied;
• assist in identifying policies likely to increase economic performance and wellbeing in the medium term;
• further develop analysis of, and evidence on, the forces driving future productivity performance and growth potential including demographic changes, technology and innovation, and market reforms;
• assist the government in taking an active role in shaping global and regional forums that seek to strengthen the international financial architecture and contribute to an effective and coordinated approach to Australian international economic policy;
• participate more intensively in policy dialogue, cooperation and institution building in the Asia-Pacific region.

Key outcomes in 2002-03

• Treasury examined domestic and international developments affecting the economy:
  • Treasury produced economic forecasts to assist with policy formulation, and chaired the Joint Economic Forecasting Group, comprising representatives from the Reserve Bank of Australia, the Department of the Prime Minister and Cabinet, the Department of Finance and Administration and the Australian Bureau of Statistics;
  • officers in Treasury provided regular advice to the Treasurer on global economic developments and emerging international risks;
  • Treasury provided briefing for the Treasurer on economic statistics released by the Australian Bureau of Statistics, including advice on their implications for the economic outlook;
  • the department undertook a Business Liaison Program to better monitor, analyse and report on economic conditions and prospects, and provided regular briefings and analysis of liaison to the Treasurer and published summaries in the Economic Roundup.
• Treasury provided advice on macroeconomic policies likely to increase economic performance and wellbeing in the medium term:
  • Treasury provided advice on fiscal policy and strategies in developing the 2003-04 Budget;
  • the department provided regular advice on monetary policy for the Secretary, who is a member of the Reserve Bank of Australia Board.
• Treasury provided advice to the Treasurer on Australia's productivity performance and growth potential, including in the context of preparing Budget Paper No. 1, Statement 4 of the 2003-04 Budget.
• Treasury continued to assist the Government to take an active role at the international financial institutions:
  • Australia's representatives played central roles in the debates at the International Monetary Fund (IMF) and World Bank on issues including sovereign debt restructuring, the Heavily Indebted Poor Countries (HIPC) initiative, improving governance and harmonising policies between the multilateral development banks;
  • Australia's representatives at the Asian Development Bank also played a key role in the continuing transformation of the Bank to a broad-based development institution, including during discussions of enhancing accountability and transparency and the Asian Development Bank's inspection function;
  • Australia also participated in discussions on global and regional economic and financial developments at the Group of Twenty (G-20), including through Treasury representation at G-20 Deputies meetings.
• Treasury continued to play an active role in the International Economic Policy Group to ensure a coordinated and whole-of-government approach to international economic policy issues.
• Treasury participated intensively in policy dialogue, cooperation and institution building in the Asia-Pacific region:
  • Australia continued to lead the Asia-Pacific Economic Cooperation (APEC) `pathfinder' initiative on corporate governance. Australia also hosted a conference as part of the APEC Future Economic Leaders' Think-Tank, which was attended by 27 participants from 14 APEC economies, and hosted a training course for insurance and pension regulators which 26 participants from 9 APEC economies attended;
  • Australia, along with Japan and the Republic of Korea, successfully proposed changes to the Manila Framework Group to enhance its focus on the key strategic economic issues affecting regional economies;
  • officers from Treasury delivered a program of workshops to the Royal Thai Government on macroeconomic forecasting and risk monitoring and assessment;
  • Treasury continued to develop the Papua New Guinea-Australia Treasury Twinning Scheme to enhance Papua New Guinea's economic governance capacity;
  • the department received delegations from Asia for policy discussions, hosted officials from Papua New Guinea and Mongolia, and facilitated the short-term placement of officials from China in the Victorian and Australian Capital Territory Treasuries.
• Treasury, in response to demands arising during the year and consistent with overall government policy, provided policy advice and skilled staff to assist countries in severe economic difficulties (including Iraq and the Solomon Islands).

Table 2: Financial and staffing resources summary for Outcome 1

Note: The Budget for 2002-03 is as per the 2002-03 Portfolio Additional Estimates Statements, any variations are due to internal reallocations. The Actual for 2002-03 is as per the Audited 2002-03 Financial Statements. The Budget for 2003-04 is as per the 2003-04 Portfolio Budget Statements (unless otherwise stated). Top

Output 1.1.1 Domestic economic policy advice and forecasting

Domestic Economy Division and Macroeconomic Policy Division in Macroeconomic Group are responsible for the delivery of Output 1.1.1, domestic economic policy advice and forecasting. Treasury contributes to Outcome 1 by monitoring and assessing economic conditions and prospects, and by providing advice on the formulation and implementation of effective macroeconomic policy, including monetary and fiscal policy.

Performance information

Advice on economic policy and the economic outlook meets Treasury portfolio ministers' needs in administering their responsibilities and implementing government decisions that contribute to a sound domestic economy. Effective presentation of budget documents and other publications to adequately inform public debate. Analysis of performance

Policy advice and inputs into policy processes

During 2002-03, Treasury advised the Treasurer and other members of the Government on a range of macroeconomic issues.

• Treasury analysed and provided briefings on a wide range of economic statistics released by the Australian Bureau of Statistics and the private sector. This included advice on implications for the economic outlook and information to assist the Treasurer in responding publicly to the releases.
• As part of the Business Liaison Program, which aims to better monitor, analyse and report on economic conditions and prospects, Treasury officers discussed specific issues from a business point of view with organisations of all sizes in both major business centres and regional Australia. The Treasurer received regular briefings and analysis of liaison findings, and summaries of liaison were published in the Treasury Roundup.
• Treasury held discussions with visiting delegations from organisations including the Organisation for Economic Co-operation and Development (OECD), the International Monetary Fund (IMF) and international credit rating agencies. The Treasurer was briefed on the outcomes of these processes.
• As part of the process of developing the 2003-04 Budget, Treasury advised the Treasurer on fiscal policy and strategies.
• The Secretary sits on the Board of the Reserve Bank of Australia. Treasury regularly provided advice on monetary policy to the Secretary prior to Board meetings. In preparing this advice, Treasury monitored economic, financial and policy developments and forecasts to assess their implications for policy settings. The Treasurer was kept abreast of developments in this area through regular briefings and analysis. This advice contributed to the formation of sound macroeconomic policy.
• Treasury provided advice on appointments to the Board of the Reserve Bank of Australia.
• Treasury provided advice to the Government submission for the Australian Industrial Relations Commission hearings on the Safety Net Adjustment.
• Macroeconomic Group contributed to the work on drivers of economic growth and implications for economic performance of demographic changes.

Economic forecasts

Economic forecasts inform policy settings and enabled the calculation of budget estimates. These forecasts took account of key assumptions about economic variables and judgements about likely outcomes. The weak world economy, the most extensive drought in Australian meteorological records, the impact of the outbreak of Sudden Acute Respiratory Syndrome (SARS) and movements in the Australian dollar were important factors taken into account when preparing economic forecasts during 2002-03. For policy formulation purposes, forecasts provide an understanding of the broad developments within the economy, and the balance of risks and uncertainties surrounding the outlook. The 2002-03 Budget contained forecasts for 2002-03 that were reassessed in the 2002-03 Mid-Year Economic and Fiscal Outlook in November 2002 and the 2003-04 Budget in May 2003. These forecasts helped to develop policy that contributed to the strong performance of the domestic economy. Economic growth in 2002-03 was forecast to be 3 per cent in the Mid-Year Economic and Fiscal Outlook, down from 3¾ per cent forecast at Budget. The downward revision largely reflected the impact of the drought, which was more extensive and severe than initially anticipated. The 2003-04 Budget further updated the outlook for 2002-03, with the forecast for economic growth left unchanged at 3 per cent. These forecasts were consistent with the assessment of international forecasters such as the OECD and IMF, and commentators generally regarded them as credible. Recent data confirm the economic outlook Treasury presented in the 2002-03 Mid-Year Economic and Fiscal Outlook and 2003-04 Budget, with strong growth in the non-farm economy partly offset by one of the most severe droughts on record. The Treasury Economic Roundup, Spring 2003 reviewed 2002-03 domestic and international economic developments, including an assessment of Treasury forecasts made during that year. Australia's economy has become increasingly efficient and flexible, with higher productivity growth. Sound and credible frameworks for monetary and fiscal policies and ongoing reforms in competition policy, the tax system, the labour market, the financial sector and corporate law underpin this development. This level of increased efficiency and flexibility has enabled the economy to continue to grow solidly despite ongoing global economic weakness and shocks such as the drought, SARS and the strong appreciation of the exchange rate in the second half of 2002-03. Treasury forecasts have helped to formulate government policy, which in turn has contributed to the increased flexibility of the Australian economy. Treasury prepared forecasts with the benefit of input from members of the Joint Economic Forecasting Group comprising Treasury (chair), the Reserve Bank of Australia, the Department of the Prime Minister and Cabinet, the Department of Finance and Administration and the Australian Bureau of Statistics. Treasury liaised with industry to obtain the most up-to-date information about business conditions. Liaison with the private sector and with other departments helped make the forecasts more robust and comprehensive. Treasury's macroeconomic model of the Australian economy also provided input into the forecasting process, as well as for the macroeconomic policy and sensitivity analyses, which strengthened policy advice.

Contributions to public awareness and debate

Treasury makes considerable contributions to public awareness and debate. Its publications have a wide audience, including international forums, foreign government agencies, tertiary institutions and the Australian public. All economic publications are free from the Treasury website (www.treasury.gov.au). This makes publications more accessible. The 2002-03 Mid-Year Economic and Fiscal Outlook reviewed the economic outlook and helped inform the public of the likely impacts of key developments such as the increasingly extensive and protracted drought and ongoing weakness in the global economy. While describing a sobering backdrop, the forecasts noted that prospects for growth in the Australian economy remain strong, and significantly better than for most of the developed world, reflecting solid fundamentals and supportive policy settings. In the 2003-04 Budget Papers, Budget Paper No. 1, Statement 3: Economic Outlook discussed in detail international and domestic economic forecasts for 2003-04. This comprehensive report included forecasts for major variables including world growth, domestic growth, inflation and employment. Budget Paper No. 1, Statement 4: Sustaining Growth in Australia's Living Standards explored the ways to maintain the recent strong rates of growth in living standards as the population ages. International evidence points to a range of benefits from mutually reinforcing policies in a sound macroeconomic environment, such as higher participation in the labour force and faster rates of productivity growth. Such changes would result in faster growth in GDP per person than projected in the Intergenerational Report published in the 2002-03 Budget. The Budget Overview and Economic Outlook is a brief, non-technical publication making budget estimates, including major policy developments and forecasts, widely accessible. The media and market commentators drew extensively on discussions in the Mid-Year Economic and Fiscal Outlook and Budget papers. The reports contributed significantly to public debate on economic issues, and helped increase public awareness about the Australian economy's performance in the recent past and its prospects. The four issues of Treasury's Economic Roundup published in 2002-03 contained overviews of economic developments and commentary on key issues underpinning Australia's recent economic performance. The Spring 2002 overview reflected on the strong rebound in economic growth in 2001-02, despite a global economic slowdown and an Autumn 2003 article assessed the short-term macroeconomic impact of The New Tax System. Other Economic Roundup articles included: The Effectiveness of Fiscal Policy in Australia - Selected Issues (Winter 2002); Key Themes from the Treasury Business Liaison Program - May/June 2002 (Winter 2002); 2001-2002 in Review: Strong Growth in the Midst of an International Slowdown (Spring 2002); Australian Net Private Wealth (Summer 2003); Key Themes from the Treasury Business Liaison Program - November 2002 (Summer 2003); Preliminary Assessment of the Impact of The New Tax System (Autumn 2003); and Key Themes from the Treasury Business Liaison Program - February 2003 (Autumn 2003). Treasury distributed quarterly updates of its macroeconomic model of the Australian economy and associated database to the Australian Bureau of Statistics for wider distribution. Since its public release in 1995-96, the Treasury macroeconomic model has continued to evolve. The model is currently being redeveloped to reflect changes in the structure of the Australian economy. The Secretary to the Treasury, Dr Ken Henry, presented a number of speeches over the year in which he highlighted economic issues surrounding Australia's demographic trends. These included giving the Chris Higgins Memorial Lecture in November 2002 and presenting speeches at the Melbourne Institute's 40^th Anniversary Dinner in February 2003 and to the Australian Business Economists in May 2003.

Reviews of economic data

Treasury has liaised extensively with the Australian Bureau of Statistics on statistical matters, both informally through regular discussion at all levels, and formally through ongoing representation on the Australian Statistics Advisory Council and the Economic Statistics User Group. Top

Output 1.1.2 International economic policy advice and assessment

International Economy Division and International Finance Division in Macroeconomic Group are responsible for the delivery of Output 1.1.2, international economic policy advice and assessment. Macroeconomic Group contributes to Outcome 1 by providing advice to government ministers on strategic international economic policy issues, advancing Australia's interests through the international financial institutions and forums, advancing Australia's interests in key IMF, World Bank and Asian Development Bank program countries, and monitoring and analysing developments in the global economy.

Performance information

Facilitation of achievement of government objectives in international forums, including strengthening the international financial system, multilateral debt relief and institutional reform in the multilateral development banks and the IMF. Advice meets Treasury portfolio ministers' needs in administering their responsibilities and implementing government decisions relating to international economic and financial issues.

Analysis of performance

Facilitation of government objectives in international forums

International developments

The world economy remained subdued in 2002-03. The tenuous recovery in the United States (US) failed to gather momentum, while Germany experienced its second recession in less than three years. Growth in the Euro area stalled and the economies of Australia's major trading partners in East Asia also weakened. Subdued equity prices, high oil prices, geo-political uncertainties including the war in Iraq, and unanticipated shocks including the SARS outbreak, affected the global economy. Global exchange rates began to realign during the year, with the US dollar depreciating significantly. Macroeconomic policies continued to be eased as concerns increased about the weak global economic outlook. Economic growth in the US and East Asia is expected to pick up gradually in the latter part of 2003 and into 2004. However, the Euro area is unlikely to experience a significant recovery, while deflation and a weak financial sector continue to hamper Japan's growth prospects.

International Monetary Fund

During 2002-03, the IMF continued to consider measures to improve its capacity to prevent and resolve financial crises. Australia has actively contributed to this debate through its representation on the IMF Board, and ministerial participation in the Spring and Annual Meetings of the IMF, regular meetings of International Monetary and Financial Committee Deputies, and other forums. Dr Martin Parkinson, Executive Director of Macroeconomic Group, presented a paper on the role of the IMF in the international financial architecture at the International Monetary Convention in Madrid in May 2003. Treasury continued to support the IMF's financial activities by participating in the Financial Transactions Plan. Treasury conducted timely, accurate and cost-efficient financial transactions with the IMF. Treasury also helped fulfil Australia's IMF obligations through organising the annual IMF Article IV consultations in June.

Heavily Indebted Poor Countries Initiative and bilateral debt relief

Australia continued its strong support for international debt relief through the enhanced Heavily Indebted Poor Countries (HIPC) Initiative as one strand of the strategy to reduce poverty for the world's poorest countries. This initiative supports the adoption of sound policies, good governance practices and effective poverty reduction programs which will further assist countries completing the enhanced Initiative to ensure an enduring exit from unsustainable debt. At the September annual meetings of the IMF and the World Bank, ministers called upon those official and commercial creditors that had not already done so to participate fully in the enhanced HIPC Initiative. Australia supported ministers' calls for a review into the difficult issues of HIPC-to-HIPC debt relief and creditor litigation, and emphasised that the HIPC Initiative should be seen as only one element of a broader development strategy. During the April 2003 meetings of the IMF and the World Bank, Australia welcomed the continuing progress made in the Initiative, and highlighted the importance of economic growth in maintaining debt sustainability and achieving poverty reduction more broadly. In the 2002-03 Budget, the Australian Government announced a new commitment of $18 million to the World Bank and IMF costs of debt relief under the enhanced Initiative. This maintains Australia's burden share and brings total Australian contributions to $77 million. This multilateral contribution complements Australia's commitment to provide 100 per cent bilateral debt relief to those heavily indebted poor countries with outstanding debts to Australia.

World Bank

In 2002-03, Australia supported the World Bank's efforts to reduce poverty, promote sustainable development and attain the Millennium Development Goals including via its representation on the Bank Board, Ministerial participation in the Spring and Annual Meetings and meetings of Deputies Committee. Australia focused on making World Bank activities more effective, efficient and transparent. Australia also sought to strengthen the links between the World Bank and Australia's aid programs in the Asia-Pacific region. In addition, Australia continued to emphasise the importance of close World Bank coordination and harmonisation with other multilateral financing organisations, notably, the IMF and the Asian Development Bank. During 2002-03 Australia, along with other donor countries, finalised the thirteenth replenishment process for the International Development Association (IDA13) and agreed to a total replenishment of SDR18 billion (Australia's total contribution is SDR146 million, around A$360 million). Also, after substantial negotiation, between 18 and 21 per cent of the IDA13 replenishment will be provided in the form of grants rather than as concessional loans.

Asian Development Bank

In 2002-03, Australia encouraged the Asian Development Bank to continue its process of transformation from a project financier to a broad-based development institution. Australia focused on the continuing improvement in internal governance to enhance accountability, effectiveness and transparency. Australia contributed to the review of the Bank's inspection function, which establishes a formal channel for addressing the concerns of local communities affected by certain Asian Development Bank-financed projects. The board of directors approved the establishment of a revised mechanism in late May 2003. Australia also participated in the mid-term review of the current replenishment (known as ADF VIII) of the Asian Development Fund, the Bank's concessional lending arm. The objective of the mid-term review meeting, held in Washington in April 2003, was to evaluate the Bank's progress in implementing the recommendations contained in the ADF VIII Donors' Report.

European Bank for Reconstruction and Development

In 2002-03, Australia continued to support the European Bank for Reconstruction and Development work in assisting in reconstruction and development of Russia, Eastern Europe and Central Asia. In particular, Australia promoted a greater focus on countries with a less advanced transition of Eastern Europe and central Asia.

The Group of Twenty

The Group of Twenty (G-20) discussed key economic and financial policy issues and promoted cooperation to achieve stable and sustainable world economic growth. Participants include finance ministers and central bank governors from the Group of Seven (G-7) nations, other significant developed countries (including Australia) and developing countries. The heads of the IMF, World Bank and their ministerial-level advisory committees are ex-officio members. Treasury officers attended the G-20 Deputies meeting in New Delhi, India in July 2002, in preparation for the Treasurer's participation in the November meeting. The Treasurer and Reserve Bank Australia Governor attended the ministerial meeting which considered the global economic outlook, financial crisis prevention and resolution, globalisation, growth and development issues and measures to combat the financing of terrorism. Treasury officers represented Australia at the G-20 Deputies meeting in March 2003, and later in May at the G-20 seminar on sovereign debt restructuring. At both meetings, discussions focused predominantly on measures to better prevent and resolve financial crises.

Manila Framework Group

Officials from Treasury and the Reserve Bank of Australia attended and played an active role at the tenth meeting of the Manila Framework Group in Brunei Darussalam in October 2002. The tenth meeting agreed that the global recovery, stronger domestic demand and intra-regional trade had supported the pick up in many member economies in 2002. However, the deputies recognised a number of risks could affect the strength and durability of the global and regional recovery, including terrorist activities and the risks of deflation at the global level as well as in some member economies. Given the risky environment, deputies acknowledged the need to maintain accommodative macroeconomic policies. They also agreed on the importance of addressing structural issues in the banking and corporate sectors, and promoting good public and corporate governance. The meeting also considered options to strengthen the Manila Framework process. It agreed to a proposal, initiated by Australia, Japan and the Republic of Korea, to refocus the policy discussion on key strategic economic issues affecting regional economies to add value to discussions in other regional economic forums. Korea will host the next Manila Framework Group meeting in Seoul in October 2003.

Financial Stability Forum

Treasury participates in some activities of the Financial Stability Forum. The forum promotes international financial stability through information exchange and international cooperation in financial supervision and surveillance. During 2002-03, the forum reviewed potential vulnerabilities in the international financial system and progress to address weaknesses in market foundations in the wake of recent corporate scandals in major markets. In October 2002, senior representatives from 15 regional economies, including Australia, and five international institutions participated in the second Asia-Pacific regional meeting. Discussion focused on potential vulnerabilities of the regional and international financial system, especially the need to deal proactively with existing and/or future non-performing loans. Participants also agreed that enhancing corporate governance practices and strengthening of accounting and auditing standards and practices remained critical.

Four Markets Group

Through the Four Markets Group, Australia, Hong Kong SAR, Japan and Singapore shared their perspectives on macroeconomic and financial market developments, including financial regulatory issues. Senior officials from the economic and finance ministries and central banks and monetary authorities, usually at the deputy level, attend the Four Markets Group meetings. The group met in Singapore in October 2002 and discussed the outlook for member economies and potential vulnerabilities in their financial markets. Members also updated the group on efforts to improve corporate governance in their jurisdictions. Australia facilitated a discussion on the key role of clearing and settlement services for the efficient operation of financial markets as well as for wider financial stability.

Asia-Pacific Economic Cooperation

Finance Ministers

In 2002-03, Treasury provided policy advice and briefings for the Treasurer at the ninth APEC Finance Ministers' meeting in Los Cabos, Mexico in September 2002. Treasury officers also attended a Technical Working Group meeting in Chiang Mai, Thailand in December 2002. The APEC Finance Ministers' process remains focused on encouraging structural reform in financial markets. Treasury led three initiatives: the APEC Future Economic Leaders' Think Tank; managing regulatory change in life insurance and pensions; and strengthening corporate governance in the APEC region. Australia hosted a training course for Managing Regulatory Change in Life Insurance and Pensions in March 2003 attended by 26 insurance and pension regulators from nine APEC economies. Annual symposiums complement these courses and encourage dialogue among regulators and industry representatives. The most recent symposium was in Singapore in November 2002. As part of the APEC Future Economic Leaders' Think-Tank, Australia hosted a conference in Sydney in June 2003 to network, problem-solve and develop creative solutions to priority regional economic and financial challenges. Twenty-seven participants attended from 14 APEC economies. Australia chairs a `pathfinder' initiative on corporate governance aimed at implementation of corporate governance best practice principles within APEC economies. Participating economies include Korea, Malaysia, Mexico, New Zealand and Singapore. In July 2003 the US and the Philippines also joined the pathfinder. Treasury supported and contributed to the Finance Ministers' action plan to combat the financing of terrorism and money laundering. Treasury also contributed to continuing Finance Ministers' initiatives including strengthening banking supervision and training for bank supervisors and securities market regulators, developing effective corporate governance structures and practices, and supporting freer and more stable capital flows through voluntary action plans. These initiatives support the Finance Ministers' objective of establishing a framework for building sound domestic institutions in the region, emphasising the development of effective and stable capital markets.

Investment Experts Group

Treasury participated in APEC's investment liberalisation, facilitation and cooperation activities by leading Australia's representation in the APEC Investment Experts' Group. Treasury worked to ensure the group focused on investment liberalisation and facilitation rather than investment promotion. Treasury also participated in the group meetings in Acapulco, Mexico, in August 2002, and then in Chiang Rai and Khon Kaen in Thailand in February and May 2003 respectively.

Economic Committee

Treasury represented Australia on APEC's Economic Committee in striving to improve output and ensure the work program met the needs of leaders, ministers and other APEC forums. The work program involves high quality research on economic issues and trends in the APEC region. Australia drafted a chapter on statistical indicators on knowledge-based economies for the 2002-03 APEC Economic Outlook.

Relations with Asia

Treasury's work in this area benefited from a sharper focus during 2002-03, through more intensive policy dialogue, cooperation and institution building. The Treasurer's speech to the Asia Society in October 2002 on Australia's role in Asia reinforced the Government's commitment to close engagement with Asia and provided support for Treasury's activities in the region. Three senior-level Treasury officials remain posted to Beijing, Jakarta and Tokyo, to assist Treasury's understanding of conditions in regional economies. They increased their contact with Treasury's counterparts in Japan, the Republic of Korea, China, Hong Kong SAR, Chinese Taipei, Indonesia, Singapore, Malaysia, Thailand and the Philippines, and, as part of the team at the relevant embassies, helped enhance Australia's economic relations with the region. To assist capacity building and policy dialogue, Treasury continued to receive delegations from Asia for discussions of policy issues. In addition, Treasury hosted PNG and Mongolian officials on short-term work experience and facilitated placements of Chinese officials in the Victorian and ACT Treasuries for short-term training on budgeting and public management issues. On 30 March-1 April, a senior level Treasury official visited Jakarta to give seminars on Australia's fiscal and monetary policy frameworks to senior officials of Bank Indonesia and the Ministry of Finance, and to staff and postgraduate students at the Faculty of Economics of University of Indonesia. In June 2003, senior officials from Domestic Economy Division undertook a consultancy project in Bangkok as part of AusAID's Thailand-Australia Capacity Building Facility. The project culminated in a week-long series of seminars on Australia's approach to macroeconomic forecasting and risk monitoring and risk assessment early warning systems. Seminar attendees represented the Bank of Thailand, the Ministry of Finance and the Office of the National Economic and Social Development Board. In early July 2003, Mr Richard Murray, Executive Director of Fiscal Group, and Mr Graeme Davis presented a seminar on Treasury's experience in formulating the Australian Government Budget and Australia's macroeconomic policy framework to the Indonesian Coordinating Minister for the Economy, the Minister for Finance and senior economic officials. Mr Murray and Mr Davis also met with Indonesian Parliament Budget Committee members. Treasury continued to provide inputs into the regional trade negotiations, including the Australia-Singapore Free Trade Agreement, the Australia-Thailand Closer Economic Relations Agreement and the wider trade and economic agreements with China, Japan and the Republic of Korea. Treasury participated in a continuing joint project by Japan's Ministry of Finance and the Australian National University to study the scope for enhancing regional financial cooperation, including the feasibility of a common currency for some economies. Dr Martin Parkinson, Executive Director of Macroeconomic Group, delivered a paper on fiscal policy and Australia's government bond market at a conference in Kuala Lumpur in March 2003.

Relations with Papua New Guinea

Treasury continued its support for Papua New Guinea (PNG) economic and governance reform. After the Somare Government took office, Treasury assisted with the preparation of a medium-term fiscal strategy to incorporate into PNG's 2003 budget. Treasury also encouraged PNG's further constructive engagement with the IMF and World Bank in the promotion of responsibly managed reform. In May 2003, Treasury convened a roundtable of Australian Government agencies to consider prospects for the PNG economy and policy options for Australia. The PNG-Australia Treasury Twinning Scheme continued to develop economic governance capacity in PNG's central economic agencies. Under the scheme Treasury advisers worked in PNG Treasury to build skills in taxation policy and revenue forecasting. Treasury also provided technical support to PNG's review of its tariff reform program and contributed to improving the skills of PNG Treasury officers through short-term placements in Treasury.

Relations with Pacific Economies

South Pacific Forum Economic Ministers' Meeting

The Treasurer attended the sixth Pacific Islands Forum Economic Ministers' Meeting (FEMM) in Port Vila, Vanuatu, in July 2002 and the Parliamentary Secretary to the Treasurer attended the seventh meeting in Majuro, Marshall Islands in June 2003. The meetings progressed the implementation of the FEMM action plan for economic liberalisation, which aims to foster greater competitiveness and self-reliance and raise living standards in forum island countries. Treasury continued to work actively to reinforce the focus on core economic challenges and encourage further development of its biennial stocktake of island country progress in implementing economic and governance reform.

Australia-New Zealand Closer Economic Relations

As part of the twentieth anniversary of Closer Economic Relations, the Treasurer visited New Zealand in February 2003 to meet the New Zealand Finance Minister. Both governments agreed to extend their imputation regimes to include companies resident in the other country and endorsed ongoing work on business law coordination, including competition law and policy. The Treasurer and New Zealand Finance Minister agreed to meet each year to pursue further economic policy coordination and the Treasurer addressed the Auckland Chamber of Commerce on 20 February 2003 on the benefits of Closer Economic Relations to both economies and scope for further economic integration.

Organisation for Economic Co-operation and Development

Treasury officers participated in the work of OECD committees on macroeconomic and microeconomic policies, forecasting, taxation, budget policy, consumer policy, competition policy, corporate governance, insurance, financial markets, investment and capital markets. Australia chairs the OECD Steering Group on Corporate Governance and the Joint Working Group on Trade and Competition. In April 2003, the Treasurer addressed the OECD's annual Ministerial Council Meeting on policies to maintain confidence and enhance growth. He also spoke to two related forums on Australia's links and shared interests with Europe and East Asia. In February 2003, Dr Martin Parkinson led the Australian delegation to the OECD Economic and Development Review Committee's annual examination of Australia. The Committee gave strong support for the pursuit of broad ranging structural reforms and prudent macroeconomic policies which have combined to make the Australian economy `one of the best performers in the OECD' and one that is noticeably resilient to internal and external shocks.

Policy advice

Economic reconstruction issues

In response to growing demands for policy advice and skilled staff to assist countries in economic difficulty, Treasury began to dedicate more resources to the International Economy Division. Much additional effort was focused on Iraq where Australia played a significant role in establishing the new Coalition Provisional Authority to administer Iraq following the removal of Saddam Hussein's regime. In addition to providing high-level policy advice, Treasury sent three officers to work with the Provisional Authority in Baghdad. Treasury staff involvement in Iraq is ongoing and focuses on a broad range of issues including establishing a payments system and preparing a national budget. Towards the end of 2002-03, focus increased on assisting the Solomon Islands as part of the Government's offer of cooperative intervention. The aim is to assist in rectifying serious problems in administering the Solomon Islands that have caused economic activity to contract.

Regional economic policy

Treasury worked with its counterparts in Japan and the Republic of Korea to refocus the discussions in the Manila Framework Group on key strategic economic policy issues affecting member economies and to add value to the process of policy dialogue in the East Asian region. The Treasurer initiated the work which culminated in the Government's removal of all tariffs and quotas for all imports originating in 49 less developed countries and East Timor, commencing on 1 July 2003. The Prime Minister announced this initiative at the APEC Leaders' meeting in November 2002. This measure has the potential to help less developed countries expand their exports to Australia and reduce poverty.

The International Economic Policy Group

Treasury continued to play an active role in the International Economic Policy Group, which remained instrumental in maintaining a coordinated whole-of-government approach to international economic developments and consideration of relevant policy issues. The group meets approximately every six weeks, or as needed. It comprises high-level officers from the Departments of the Prime Minister and Cabinet, Foreign Affairs and Trade, Treasury, AusAID, the Office of National Assessments and the Reserve Bank of Australia, with other departments attending as required. Top